Lifetime ISAs guide

pink_pirlie

I also got a reply today from HMRC after emailing them weeks before Easter! They must have finally got around to viewing the inbox. :mad:

What they said to you aligns with my understanding.
They didn’t really answer my questions which is annoying. So I’m really happy you got clarification of what you asked.

Unfortunately I think you are going to suffer the withdrawal penalty unless you can source some or all the exchange deposit money elsewhere and then withdraw from the ISA after the 1 year, or your seller will agree a smaller exchange deposit and you only need to partially withdraw from the LISA.

gssaggu1

Hi all,

General LISA question which I wasn't able to find an answer to:

What happens if you've saved into a LISA and the house price you find exceeds £450k (e.g. £455k)? Do you get penalised or can you simply use the money from the LISA without the bonus if it's still towards buying a house? I'm slightly apprehensive about this prospect because, if it cannot be used, then you're resigned to keeping it for retirement or face a penalty withdrawal charge.

More specifically

I'm deliberating about how best to proceed; my partner and I each have existing H2B ISAs started from the previous financial year (annoyingly we missed the transfer over period for LISA of this financial year whereby transfers didn't eat into the 4k limit!). We're aiming to buy in 2-3 years realistically. We're in the process of signing up to Skipton Cash ISA and were about to transfer the H2B ISA into it, but stopped - acknowledging that we would be using the majority of the financial amount for this year (~3.4k of the £4k allowance) and giving us some thinking time.

Given the above circumstances I was wondering what you might suggest:

Scenario A - Transfer H2B into LISA and leave it as that
Scenario B - Keep both open and continue to top both up (which if done would leave me asking: what would happen later down the line when more than 4k is in H2B ISA and therefore cannot be transferred into the LISA due to the annual 4k limit? Does the surplus get sent to your current account?)

TIA!!!

eskbanker

gssaggu1 wrote: »

What happens if you've saved into a LISA and the house price you find exceeds £450k (e.g. £455k)? Do you get penalised or can you simply use the money from the LISA without the bonus if it's still towards buying a house? I'm slightly apprehensive about this prospect because, if it cannot be used, then you're resigned to keeping it for retirement or face a penalty withdrawal charge.

LISA and HTB bonuses work in entirely different ways, which may help clarify this - with HTB you claim the bonus at the end when you're ready to buy but LISA bonuses are added to the balance as you go, monthly according to any contributions made that month, after which interest is earned on everything in the LISA. So, there is no distinction in a LISA between 'your money' and the bonuses as they're all merged together (plus interest), and therefore you can't take out just the original contributions without the bonus.

Which is all just a long-winded (but hopefully explanatory) way of saying that even for a first-time property purchase, if it's over the £450K property price limit then you have to pay the 25% penalty (of the amount withdrawn) if you want to use money from the LISA.

gssaggu1 wrote: »

Given the above circumstances I was wondering what you might suggest:

Scenario A - Transfer H2B into LISA and leave it as that
Scenario B - Keep both open and continue to top both up (which if done would leave me asking: what would happen later down the line when more than 4k is in H2B ISA and therefore cannot be transferred into the LISA due to the annual 4k limit? Does the surplus get sent to your current account?)

For scenario B you'd need to recognise that you can't use both a LISA (without penalty) and a HTB (with bonus) for a first-time purchase, you effectively have to choose one or the other. It's still viable to do that - many are using the LISA (with its higher annual allowance) for the penalty-free bonus, and paying into HTB solely for the interest but not the bonus. Unlike LISA, you can withdraw HTB money without penalty (albeit without bonus too) so anything you can't transfer into a LISA can simply be withdrawn.

an1179

I have a help to buy ISA also a LISA. For 2018/2019 tax year what is the best way to maximise my house deposit pot?

1. can save £200 per month (total £2,400) into Halifax help to buy at 3.5% interest and transfer in February/March 2019 to Lisa having deposited the balance of £1,600 into LISA in July probably. Total into Skipton £4,000

2. Or save £4000 into LISA in July. Interest on Skipton cash ISA is 0.75% and just use help to buy as a saving account for the high interest?

Eventually with the intention of using the LISA to fund my deposit.

I am thinking option 1. but just need someone better at maths to confirm.

Thank you

Alexland

You are better making all deposits into the cash LISA towards the end of the tax year (but leaving enough time for any unexpected issues to be resolved) and saving elsewhere at a higher interest for most of the year.

You could use your 3.5% HTB ISA or if you bank with Nationwide or Santander they have 5% instant access regular saver accounts which you may qualify for?

Alex

cooldude255220

Alexland wrote: »

You are better making all deposits into the cash LISA towards the end of the tax year (but leaving enough time for any unexpected issues to be resolved) and saving elsewhere at a higher interest for most of the year.

You could use your 3.5% HTB ISA or if you bank with Nationwide or Santander they have 5% instant access regular saver accounts which you may qualify for?

Alex

Is there a minimum amount of time that the money has to be in the LISA before it's used to buy a house?

Alexland

cooldude255220 wrote: »

Is there a minimum amount of time that the money has to be in the LISA before it's used to buy a house?

Yes 12 months from the initial contribution when the account was opened. Of course you would also want to wait for any bonus to be added around a month or so after each contribution date. And the withdrawal process could take a month too.

cooldude255220

Alexland wrote: »

Yes 12 months from the initial contribution when the account was opened. Of course you would also want to wait for any bonus to be added around a month or so after each contribution date. And the withdrawal process could take a month too.

Okay, thank you! If my partner opens one too, would she have to co-own the house, or could it be in my sole name?

Alexland

cooldude255220 wrote: »

Okay, thank you! If my partner opens one too, would she have to co-own the house, or could it be in my sole name?

If she wants to use money from her LISA, without penalty, to support a qualifying property purchase, after the 12 month rule, she would need to be acquiring an interest in the property supported by a mortgage.

Alex

cooldude255220

Alexland wrote: »

If she wants to use money from her LISA, without penalty, to support a qualifying property purchase, after the 12 month rule, she would need to be acquiring an interest in the property supported by a mortgage.

Alex

Okay, thank you!

If the mortgage was in my sole name, but she got an interest in the property (i.e we were tenants in common), would that count? Or would she also have to be on the mortgage?

Edit: It appears for Help to buy ISAs you don't, but I can't find anything confirming this applies to LISAs!

Do I have to be on the mortgage of the property I am buying?
In order to be eligible for a government bonus you need to be on the title deed of the property and the property must be purchased with the assistance of a mortgage. Under the Help to Buy: ISA Scheme Rules, you don!!!8217;t need to be named on the mortgage of the property, however your lender may require all individuals named on the title deed to also be named on the mortgage.

https://www.helptobuy.gov.uk/help-to-buy-isa/faq/